28th March 2011
A brief introduction to Frank H Knight
I have studied economics and its theories only incidentally and sporadically, primarily out of curiosity and general interest in the mechanisms of wealth production. My main interests are much broader and diffused, verging into general philosophy, science, and art. However, economics being such a broad discipline, has something useful to say about virtually everything we do in life. Hence it continues to retain my interest.
I say this to point out that I'm not an economic historian nor historian of economic thought. And the way economics is structured in a standard [post] graduate university course (I did not study economics at the undergraduate level), it is hard to learn much about the main contributors of the discipline. Indeed, the discipline is almost entirely mathematical today; a few footnotes may provide hints about key economists, but it takes many years and much ongoing curiosity to come across the works of the foundational contributors of this discipline.
Frank Knight was a teacher of future Nobelists. He started what is called the Chicago school and taught Milton Friedman, George Stigler and James Buchanan, among others. He is also a prominent classical liberal, being a co-founder of Mont Pelerin society along with F.A. Hayek, Ludwig von Mises and Karl Popper.
I am not familiar with his work, however. I do broadly know he did some work on risk and uncertainty but that's probably all I know about him. And I do have his little book, The Economic Organisation (1933, 1951) in my library but have rarely browsed through it.
Today I learnt some more about Knight. Given the discussion I'm having with Harold Demsetz, I decided to investigate the references cited by Demsetz in his 2011 paper. One of the papers cited is Frank Knight's "Some Fallacies in the Interpretation of Social Cost”, Quarterly Journal of Economics 38 (1924). I therefore went through Knight's paper today and found it to be exceptionally clear-headed – which clarifies why Demsetz values it so much in his paper.
I'll have more to say about Knight later, but at the moment let me present a brief extract from The Economic Organisation. This is not an ordinary book, despite being a very thin booklet. Hayek wrote on its back cover jacket, thus:
"There can be few contemporary works on economics which, without ever having been regularly published, have achieved such wide circulation and fame as Frank H. Knight's Economic Organisation. For nearly a generation the various typed and mimeographed editions have been extensively used and drawn up. It is greatly to be welcomed that this influential essay is now at last made available in permanent form."
Basically this book summarises key principles of economics for first or second year university students. In doing so it covers the material without distorting fundamental concepts like the Keynesians did. As this website, dedicated to Knight, states:
Knight spent his career opposing the efforts of progressives, institutionalists, Keynesians, and Christians who advocated social control in the name of science and/or morality. Liberal society, he believed, was always in danger from those who claimed to know what was best for society on either moral or scientific grounds.
Below is the introductory paragraph in the book's chapter on the price system. Note the exceptionally clear writing style and you'll appreciate why he is so highly regarded.
EXTRACT from the chapter on the price system
One of the most conspicuous features of organization through exchange and free enterprise, and one most often commented upon, is the absence of conscious design or control. It is a social order, and one of unfathomable complexity, yet constructed and operated without social planning or direction, through selfish individual thought and motivation alone. No one ever worked out a plan for such a system, or willed its existence; there is no plan of it anywhere, either on paper or in anybody's mind, and no one directs its operations.' Yet in a fairly tolerable way, "it works", and grows and changes.
We have an amazingly elaborate division of labor, yet each person finds his own place in the scheme; we use a highly involved technology with minute specialization of industrial equipment, but this too is created, placed and directed by individuals, for individual ends, with little thought of larger social relations or any general social objective. Innumerable conflicts of interest are constantly resolved, and the bulk of the working population kept generally occupied, each person ministering to the wants of an unknown multitude and having his own wants satisfied by another multitude equally vast and unknown – not perfectly indeed, but tolerable on the whole, and vastly better than each could satisfy his wants by working directly for himself. To explain the mechanism of this cooperation, unconscious and unintended, between persons whose feelings are often actually hostile to each other, is the problem of economic science. It is both a challenge to the intellectual interest, and of surpassing practical importance: for the workings of the system must be understood, if the action which society, in its self-conscious aspect is constantly taking in regard to it, is to result in good rather than harm.
[NOTE: I've broken up this quotation into smaller paragraphs, for convenience]
Here's a useful blog post on Knight (12 May 2011)